Indonesian inflation edges up as fuel price hike looms

JAKARTA, Indonesia - Indonesia's inflation accelerated faster than expected in October, official data showed Monday, November 3, as prices of some goods were hiked in anticipation of the new government raising the fuel price.

Inflation rose to 4.83% on-year in October from 4.53% the previous month as the cost of everyday items such as cigarettes and cooking gas increased, the statistics agency said.

It was slightly higher than economists had forecast.

"Prices have gone up now because the market has anticipated the fuel price hike," said Destry Damayanti, chief economist from Indonesia's Bank Mandiri.

A hike pushes up the price of everyday goods due to increased transportation costs.

New President Joko "Jokowi" Widodo is expected to announce a large increase in the price of petrol and diesel in the coming weeks to cut government subsidies that are a drain on Southeast Asia's biggest economy.

Economists say Jokowi has no choice but to reduce the crippling payouts that eat up around a fifth of the annual budget, and are blamed for a large current account deficit that has spooked investors. (READ: Why we shouldn’t politicize the fuel subsidy debate)

However, hiking the price is unpopular and has in the past sparked violent protests.

The central bank governor has warned that if fuel prices are increased by nearly half, as expected, inflation could reach more than 9% this year.

September's trade deficit narrowed slightly to $270 million from around $320 million the previous month, official data showed. It was still larger than economists had forecast, however, with exports to Indonesia's top trade partner China slowing.

Manufacturing activity contracted in October, with HSBC's purchasing managers index dipping to 49.2 following a modest rebound in September. A reading above 50 indicates expansion, while below signals contraction. –